Larry Summers

In an NBER working paper issued in April 2016, Secular Stagnation in the Open Economy, Gauti B. Eggertsson, Neil R. Mehrotra and Lawrence H. Summers look at conditions of secular stagnation – low interest rates, below target inflation, and sluggish output growth – that now characterize much of the global economy. They consider a simple two-country textbook model to examine how capital markets transmit secular stagnation and to study policy externalities across countries. They find capital flows transmit recessions in a world with low interest rates and that policies that trigger current account surpluses are beggar-thy-neighbor. Monetary expansion cannot eliminate a secular stagnation and may have beggar-thy-neighbor effects, while sufficiently large fiscal interventions can eliminate a secular stagnation and carry positive externalities.